Dollar General Corp. said this year's sales and profit would likely top analysts' expectations as it remodels its stores and sells more food and clothing, sending its shares up over 2 per cent.
Dollar General declined to comment on speculation that it might be interested in buying rival Family Dollar Stores Inc. Chief executive officer Rick Dreiling called Charlotte, N.C.-based Family Dollar - which has rebuffed an offer from Trian Group - a "great competitor."
Interest in dollar stores has risen in recent months as lower-income consumers shifted away from pricier stores and even from discounters like Wal-Mart Stores Inc. to save on basic goods like food. Dollar General and its rivals have smaller stores that sell everything from snacks to sandals.
A spokesman for Family Dollar declined to comment on the remarks made on Dollar General's conference call. Earlier this month, Family Dollar rejected a $55 (U.S.)- to $60-a-share offer from Nelson Peltz's Trian Group.
Meanwhile, Leonard Green & Partners teamed up with the family that runs 99 Cents Only Stores to try to take that company private, and Big Lots Inc. has reportedly hired a bank to explore options including a potential sale.
Dollar General is majority-owned by private equity firm Kohlberg Kravis Roberts & Co LP, which brought the company back to the public market in November of 2009.
Dollar General prices most of the merchandise at its 9,372 stores below $10 and is updating stores to entice shoppers with better layouts, more food and a wider variety of apparel.
Mr. Dreiling said winter storms cut into some shopping in the latter half of the three-month period.
Its core customers are still dealing with tough economic conditions, recently exacerbated by higher gasoline prices, and have cut back on discretionary purchases.
Mr. Dreiling, noting that NASCAR fans shop at its stores, went to last Sunday's NASCAR race in Bristol, Tenn., and said the stands were probably about 30 per cent empty.
"There's a lot of stress out there still," Mr. Dreiling said.
Customers are coming in a little less often but buying more items when they do visit, he said. Also, Dollar General is still seeing higher-income customers visit its stores.
After seeing "tremendous growth" during the last two years, fundamentals are slowing in the sector as customers who traded down to the stores may be returning to other chains and low-income customers must spend more on food and gas, said MKM Partners analyst Patrick McKeever.
While the dollar stores remain "healthy," they largely trade at valuations above other retailers, he said.
Dollar General forecast earnings of $2.20 to $2.30 a share for the fiscal year ending Feb. 3, 2012, including about 6 cents a share from having an extra week.
Analysts, who generally excluded the 53rd week, were expecting it to earn $2.14 per share.
Dollar General forecast that sales would rise 11 per cent to 13 per cent, including about 2 percentage points from the extra week. The average analyst revenue forecast of nearly $14.26-billion, according to Thomson Reuters I/B/E/S, would be a 9.3-per-cent increase.
Same-store sales, or sales at stores open at least a year, should rise 3 to 5 per cent, based on a comparable 52-week period, the company said.
Fourth-quarter sales rose 9.4 per cent to $3.49 billion. Same-store sales rose 3.8 per cent, missing the company's forecast of about 5 per cent.
Same-store sales increased at the slowest pace of the year, following gains of 4.2 per cent in the third quarter, 5.1 per cent in the second and 6.7 per cent in the first. Same-store sales rose 7.4 per cent in the year-ago fourth quarter.
Dollar General earned $222.5-million or 64 cents a share in the fourth quarter ended on Jan. 28, up from $87.2-million or 26 cents a year earlier, helped in part by a lower-than-expected tax rate.
Excluding certain items, Dollar General earned 65 cents a share, beating Wall Street's forecasts of 59 cents.
Dollar General still plans to open 625 stores this year and to relocate about 550 stores.